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CFPB releases RFI on external engagements
On February 21, the CFPB released its fifth Request for Information (RFI) in a series seeking feedback on the bureau’s operations. This RFI solicits public comment on how the Bureau can best “conduct future external engagements while continuing to achieve the Bureau’s statutory objectives.” According to the RFI, the Bureau’s “external engagements” are public and non-public meetings, including: field hearings, town halls, roundtables, and meetings of its advisory board and councils. The Bureau is required by the Dodd-Frank Act to have a Consumer Advisory Board. The Bureau has also chosen to form three advisory councils: the Community Bank Advisory Council, the Credit Union Advisory Council, and the Academic Research Council.
The RFI broadly requests feedback on all aspects of these external engagements but also highlights specific topics on which comment is requested, including (i) strategies for seeing feedback from diverse external stakeholders; (ii) information related to the methods, such as town halls and field hearings, the Bureau uses to receive feedback; (iii) the current process for transparency in the details of the events; (iv) strategies for promoting transparency while protecting confidential business information; and (v) other approaches not currently utilized by the Bureau. The RFI is expected to be published in the Federal Register on February 26. Comments will be due 90 days from publication.
CFPB Succession: CFPB releases five-year strategic plan; Trump’s budget proposal suggests cuts
On February 12, the CFPB released its five-year strategic plan, which establishes the agency’s long-term strategic goals with corresponding objectives and achievement strategies. The strategic plan also introduces a new stated mission for the CFPB, which is based on Sections 1011(a) and 1013(d) of the Dodd-Frank Act:
“To regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws and to educate and empower consumers to make better informed financial decisions.”
The new mission focuses on regulation and education but is silent on enforcement, as compared to the Bureau’s previous mission:
“The CFPB helps consumer financial markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.”
In addition to the mission, with the exception of the achievement strategies, the plan’s goals and corresponding objectives are all also restatements of various sections of title X of the Dodd-Frank Act. According to the plan, the Bureau will act with “humility and moderation” in achieving the three stated goals, which are:
- “Ensure that all consumers have access to markets for consumer financial products and services.”
- “Implement and enforce the law consistently to ensure that markets for consumer financial products and services are fair, transparent, and competitive.”
- “Foster operational excellence through efficient and effective processes, governance and security of resources and information.”
Notable, are the strategies the Bureau has outlined to achieve its goals and objectives. Among others, these strategies include, (i) reviewing individual regulations for clarification opportunities and considering alternative approaches to regulation; (ii) enhancing institutional regulatory compliance to protect consumers from discrimination and UDAAP violations; (iii) focusing enforcement resources on institutions and product lines that pose the greatest risk to consumers; (iv) promoting the development of compliance technology solutions. The strategic plan also focuses on internal strategies to achieve the Bureau’s mission, such as, maintaining a responsive cybersecurity program and promoting budget discipline.
The final strategic plan is a significant rewrite of the draft strategic plan published in October 2017 under the Bureau’s previous leadership (covered by InfoBytes here). The final plan represents a “more coherent strategic direction” compared to the draft version, according to a letter written by acting Director Mick Mulvaney, which accompanies the final plan.
On the same day as the strategic plan was released, President Trump issued his 2019 budget proposal which outlines a plan to place the CFPB under the congressional appropriations process, cut the Bureau’s budget by more than $6 billion over 10 years, and restrict the Bureau’s enforcement authority of federal consumer financial laws. More InfoBytes details about the budget proposal are available here.
President Trump releases 2019 budget proposal; key areas of reform include appropriation shifts, cybersecurity, and financial crimes
On February 12, the White House released its fiscal 2019 budget request, Efficient, Effective, Accountable, an American Budget (2019 budget proposal), along with Major Savings and Reforms (MSR) and an Appendix. The mission of the President’s budget sets forth priorities, including imposing fiscal responsibility, reducing wasteful spending, and prioritizing effective programs. However, the 2019 budget proposal has little chance of being enacted as written and does not take into account a two-year budget agreement Congress passed that the President signed into law on February 9. Notable takeaways of the 2019 budget are as follows:
CFPB. Under the MSR’s “Restructure the Consumer Financial Protection Bureau” section, Congress and the current administration would implement a broad restructuring of the Bureau to “prevent actions that unduly burden the financial industry” by restricting its enforcement authority over federal consumer law. Among other things, the proposed budget would cap the Federal Reserve’s (Fed) transfers this year at $485 million (an amount equivalent to its 2015 budget) and eliminate all transfers by 2020, at which point the Bureau’s appropriations process would shift to Congress.
Commodity Futures Trading Commission (CFTC). As stipulated in the Appendix, the budget proposes legislation, which would authorize the CFTC to collect $31.5 million in user fees to fund certain activities and would bring the Commission’s budget to $281.5 million for 2019. According to the administration, if the authorizing legislation is enacted, it would be “in line with nearly all other Federal financial and banking regulators.”
Cybersecurity. The 2019 budget proposal requests funding for the Department of Homeland Security (DHS) and the Department of Defense (DOD) to execute efforts to counter cybercrime. The DOD funds would go towards efforts to sustain the Cyber Command’s 133 Cyber Mission Force Teams, which “are on track to be fully operational by the end of 2018.” Furthermore, the administration states it “will improve its ability to identify and combat cybersecurity risks to agencies’ data, systems, and networks.”
Financial Stability Oversight Council (FSOC). Currently FSOC (which is comprised of the heads of the financial regulatory agencies and monitors risk to the U.S. financial system) and the Office of Financial Research (OFR) (FSOC’s independent research arm) receive funding through fees assessed on certain bank holding companies with assets of at least $50 billion as well as nonbanks supervised by the Fed. However, the 2019 budget proposal would require FSOC and OFR to receive their funding through the normal congressional appropriations process.
Flood Insurance. Outlined in the MSR is a budget request that would reduce appropriations for the National Flood Insurance Program's flood hazard mapping program by $78 million. The funding reduction is designed to “preserve resources for [DHS]’s core missions”; however, the administration plans to work to “improve efficiency in the flood mapping program, including incentivizing increased State and local government investments in updating flood maps to inform land use decisions and reduce risk.” Additionally, contained within the Appendix is a proposal for a “means-tested affordability program” that would determine assistance for flood insurance premium payments based on a policyholder's income or ability to repay, rather than a home's location or date of construction.
Government Sponsored Enterprises. Noted within the MSR, the budget proposes doubling the guarantee fee charged by Fannie Mae and Freddie Mac to loan originators from 0.10 to 0.20 percentage points from 2019 through 2021. The proposal is designed to help “level the playing field for private lenders seeking to compete with the GSEs” and would “generate approximately $26 billion over the 10-year Budget window.”
HUD. The 2019 budget proposal eliminates funding for the following: (i) the CHOICE Neighborhoods program (a savings of $138 million), on the basis that state and local governments should fund strategies for neighborhood revitalization; (ii) the Community Development Block Grant (a savings of $3 billion), over claims that it “has not demonstrated a measurable impact on communities”; (iii) the HOME Investment Partnerships Program (a savings of $950 million); and (iv) the Self-Help and Assisted Homeownership Opportunity Program Account (a savings of $54 million). The budget also proposes reductions to grants provided to the Native American Housing Block Grant and plans to reduce costs across HUD’s rental assistance programs through legislative reforms. Rental assistance programs generally comprise about 80 percent of HUD’s total funding.
SEC. As stipulated in the MSR, the budget proposes eliminating the SEC’s mandatory reserve fund and would require the SEC to request additional funds through the congressional appropriations process starting in 2020. According to the Appendix, the reserve fund is currently funded by collected registration fees and is not subject to appropriation or apportionment. Under the proposed budget, the registration fees would be deposited in the Treasury’s general fund.
SIGTARP. As proposed under MSR, the 2019 budget would reduce funding for the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) “commensurate with the wind-down of TARP programs.” According to the proposal, “Congress aligned the sunset of SIGTARP with the length of time that TARP funds or commitments are outstanding,” which, Treasury estimates, will be in 2023. This will mark the final time payments are expected to be made under the Home Affordable Modification Program (HAMP). As previously covered in InfoBytes, SIGTARP delivered a report to Congress last month, which identified unlawful conduct by certain of the 130 financial institutions in TARP’s Making Home Affordable Program as the top threat to TARP and, thus, the agency’s top investigative priority.
Student Loan Reform. Under the 2019 budget proposal, a single income-driven repayment plan (IDR) would be created that caps monthly payments at 12.5 percent of discretionary income. Furthermore, balances would be forgiven after a specific number of repayment years—15 for undergraduate debt, 30 for graduate. In doing so, the Public Service Loan Forgiveness program and subsidized loans will be eliminated, and reforms will be established to “guarantee that all borrowers in IDR pay an equitable share of their income.” These proposals will only apply to loans originated on or after July 1, 2019, with the exception of loans provided to borrowers in order to finish their “current course of study.”
Treasury Department. Under the 2019 budget proposal, safeguarding markets and protecting financial data are a top priority for the administration, and $159 million has been requested for Treasury’s Office of Terrorism and Financial Intelligence to “continue its critical work safeguarding the financial system from abuse and combatting other national security threats using non-kinetic economic tools. These additional resources would be used to economically isolate North Korea, complete the Terrorist Financing Targeting Center in Saudi Arabia, and increase sanctions pressure on Iran, including through the implementation of the Countering America’s Adversaries Through Sanctions Act.” The budget also requests a $3 million increase from 2017 to be applied to the Financial Crimes Enforcement Network’s authority to administer the Bank Secrecy Act and its work to prevent the financing of terrorism, money laundering, and other financial crimes.
CFPB Succession: Senators express concern over CFPB’s investigation into data breach; Otting praises Mulvaney; & more
On February 7, a bipartisan group of 32 senators wrote to the CFPB expressing concerns over reports that the Bureau may have halted an investigation into a large credit reporting agency’s significant data breach. The letter requests specific information related to agency’s oversight over the issue, such as, (i) whether the CFPB has stopped an on-going investigation into the data breach and if so, why; (ii) whether the CFPB intends to conduct on-site exams of the credit reporting agency at issue; and (iii) if an investigation is on-going, details related to the steps taken in that investigation. Additionally, on February 6, during a House Financial Services Committee hearing on the Financial Stability Oversight Council (FSOC), Representative David Scott, D-Ga., addressed rumors that the CFPB has scaled back its investigation of a large credit reporting agency’s significant data breach. In response to Scott, Treasury Secretary Steven Mnuchin noted that, while he has not done so yet, he intends to discuss the matter with acting Director Mulvaney and at FSOC. According to reports, a spokesperson for the Bureau noted that Mulvaney takes data security issues “very seriously” but that the Bureau does not comment on open enforcement or supervisory matters. It has also been reported that the CFPB may be deferring to the FTC’s on-going investigation.
Comptroller of the Currency, Joseph Otting, issued a statement on February 6 after meeting with Mulvaney about ways the CFPB and the OCC can work together to pursue each agency’s mission. Otting praised Mulvaney’s leadership of the agency and noted that the recent announcements regarding HMDA compliance and the payday rule reconsideration have “helped to reduce the burden on the banking system.” (Previously covered by InfoBytes here and here).
On the same day, the CFPB announced that Kirsten Sutton Mork was selected as the new chief of staff for the agency. Mork had been serving as staff director of the House Financial Services Committee under Chairman Jeb Hensarling, R-Texas. Leandra English previously held the role of chief of staff, prior to her appointment as deputy director in late November. English’s litigation against the appointment of Mulvaney as acting director continues with the U.S. Court of Appeals for the D.C. Circuit and oral arguments have been set for April 12.
CFPB releases RFI on enforcement process
On February 7, the CFPB released its third Request for Information (RFI) in a series seeking feedback on the bureau’s operations. This RFI solicits public comment on “information to help assess the overall efficiency and effectiveness of [the bureau’s] processes related to the enforcement of federal consumer financial law.” The RFI broadly requests feedback on all aspects of the enforcement process but also highlights specific topics on which comment is requested, including (i) timing and frequency of communication from the Bureau during investigations, including information about the status of the investigation; (ii) length of investigations; (iii) the Notice and Opportunity to Respond and Advise (NORA) process, including whether invocation of the NORA should be mandatory and whether the bureau should afford subjects of potential enforcement actions the right to make an in-person presentation to bureau personnel prior to the bureau determining whether to initiate legal proceedings; (iv) civil money penalty (CMP) amounts, including whether the bureau should adopt a CMP matrix; (v) the standard provisions of consent orders; and (vi) how the bureau should coordinate its enforcement activity with federal or state agencies with overlapping jurisdictions. The RFI is expected to be published in the Federal Register on February 12. Comments will be due 60 days from publication.
InfoBytes coverage of previous RFIs can be found here and here.
Federal Reserve blocks national bank’s growth, cites internal governance and risk management oversight failures
On February 2, the Federal Reserve Board (Fed) cited compliance breakdowns and widespread consumer abuses as the primary factors behind its decision to issue an order to cease and desist against a national bank. In addition to blocking the bank from growing beyond $1.95 trillion in assets until the Fed approves internal governance and risk management reforms, the order also requires the bank to take actions in the areas of board effectiveness, risk management program improvement, third party reviews of plans and improvements, and reports on progress. The bank must, among other things, (i) create “separate and independent reporting lines” to the chief risk officer and the board, and (ii) enhance risk management oversight and functions, which includes creating “an effective risk identification and escalation framework.” The bank concurrently agreed to replace four current board members in 2018, with three replaced by April. Notably, the order does not require the bank to cease current activities such as accepting customer deposits or making consumer loans.
The Fed also sent letters to the bank’s former lead independent director and former chair of the board of directors (see letters here and here) to address the “many pervasive and serious compliance and conduct failures” that occurred during their tenures. Citing ineffective oversight following awareness of alleged consumer abuses, the Fed stated that the former directors failed to initiate any serious inquiry or request that the board do so. Further, the Fed asserted that the former chair of the board continued to support the sales goals that were a major cause of the identified sales practice problems and failed to initiate a serious investigation or inquiry. A third letter sent to the current board of directors outlines steps the board must take to improve senior management reporting, maintain an effective risk management structure, and ensure compensation and other incentive programs are “consistent with sound risk management objectives and promote . . . compliance with laws and regulations.” (See here and here for previous InfoBytes coverage on the alleged improper sales practices.)
In response, the bank issued a press release stating it will commit to the Fed’s requirements and will provide a compliance plan for oversight, compliance, and operational risk management to the Fed within 60 days. The plan will also outline measures already completed by the bank, and if approved by the Fed, the bank will engage independent third parties to review its adoption and implementation of the plan.
CFPB releases HMDA formatting tool and updates filing instructions
On February 1, the CFPB launched their 2018 Loan/Application Register (LAR) Formatting Tool (the “Tool”). According to the website, the Tool is intended to assist small volume lenders in creating an electronic file to submit to the HMDA Platform. The Tool is only intended to be used by institutions that are not able to format their HMDA data into a “pipe delimited text file.” The Bureau also announced minor updates to the 2018 Filing Instructions Guide for HMDA. As previously covered by InfoBytes, the CFPB’s supervisory examinations of 2018 HMDA data will be “diagnostic” to help “identify compliance weaknesses, and will credit good-faith compliance efforts.” The CFPB does not intend to impose penalties with respect to errors reported in the 2018 data.
Review procedures need enhancing according to GAO’s Regulatory Flexibility Act compliance report
On January 30, the Government Accountability Office (GAO) released its annual report on federal financial regulators’ compliance with the Regulatory Flexibility Act (RFA). Specifically, the report assessed whether certain regulators adhered to the RFA when drafting and implementing regulations that may affect small entities. Such regulators include the Federal Reserve, Commodity Futures Trading Commission, CFPB, FDIC, OCC, and SEC (collectively, the "agencies"). Under the RFA, the agencies must either (i) certify that a rule would not have a significant economic impact on a substantial number of small entities, or (ii) perform a regulatory flexibility analysis to assess the rule’s impact on small entities and “consider alternatives that may minimize any significant economic impact of the rule.” The report disclosed issues related to certifications. Examples included (i) providing incomplete disclosures of data sources or methodologies of economic analysis and impact; (ii) failing to provide definitions for criteria used to determine a “substantial number” or a “significant economic impact”; and (iii) relying on alternative and potentially outdated definitions of small entities. Additionally, GAO noted that many regulators were unable to provide supporting documentation for their analyses. GAO presented 10 recommendations for enhancing compliance procedures, and stressed that regulators should “develop and implement specific policies and procedures for consistently complying with RFA requirements and related guidance for conducting RFA analyses.” Specific recommendations for each agency are located here.
District judge enters final judgment against company posing as a direct lender; rules in favor of CFPB
On January 30, a federal judge for the U.S. District Court for the Southern District of New York ordered a New Jersey-based company along with two associated individuals (defendants) to pay civil money penalties totaling $75,000 for allegedly offering loans to consumers who were awaiting payouts from legal settlements or victim-compensation funds. As previously covered in InfoBytes, the order stems from a complaint filed against defendants for allegedly engaging in deceptive acts and practices in violation of the Consumer Financial Protection Act by purportedly representing itself as a direct lender, when in actuality it did not provide loans to consumers, but instead brokered transactions while charging a commission for the service. Defendants neither admitted nor denied the allegations in the complaint. In addition to civil money penalties, the order permanently bans defendants from participating either directly or indirectly in any activities related to funding post-settlement litigation or victim compensation funds.
CFPB releases RFI on administrative adjudications
On January 31, the CFPB released its Request for Information (RFI) on administrative adjudications, which solicits public comment on the process for the Bureau to “better understand the benefits and impacts of its use of administrative adjudications, and how its existing process may be improved.” The RFI broadly requests feedback on “all aspects” of the administrative adjudication process but also highlights specific topics on which comment is requested, including (i) whether the Bureau should abandon the process and pursue contested matters only in federal court; (ii) the policy for proceedings to be conducted expeditiously, including the associated timeframes; (iii) whether the Bureau should make documents available to respondents electronically at its own expense; (iv) whether CFPB staff should be permitted to issue subpoenas without approval of the administrative law judge; (v) limitations on expert witnesses; (vi) limitations on discovery, including deposing fact witnesses or servicing interrogatories; and (vii) whether there should be the opportunity to stay a decision of the director pending appeal by filing a supersedeas bond. The RFI was published in the Federal Register on February 5 and comments are due by April 6.
This is the second RFI released related to the CFPB’s plan to publish a series of RFIs seeking input on the way the Bureau is performing its statutory obligations. As previously covered by InfoBytes, the CFPB’s first RFI related to Civil Investigative Demands (CIDs).